Citi Thinks Aave Could Become the Go-To Lender for Tokenized Assets. Can AAVE Recover From a 77% Drop?

Citi Research, part of Citigroup (NYSE: C | C Price Prediction), has identified Aave (CRYPTO: AAVE) as a potential leader in lending for tokenized assets once they move on-chain. The Citi Aave note highlights the importance of collateral mobility as one of the key benefits of tokenization. Collateral mobility allows users to pledge tokenized assets—like a blockchain version of Treasury funds—as loan security without the delays of traditional bank systems.

Aave operates as a lending protocol, enabling users to borrow cryptocurrencies by locking up their assets as collateral. Citi’s interest positions Aave as one of the few decentralized finance (DeFi) applications a major bank has publicly named as possible plumbing for tokenized markets.

Despite this endorsement, AAVE continues to struggle. As of October 20, 2026, the token trades at $148, down 7.4% over the past week and 2.1% in the last 24 hours. Moreover, it is now down 77% from its May 2021 peak of $662.

While public summaries of Citi’s report do not specify a price target for AAVE or name any banks or funds that have committed to using Aave, the question remains: Can Wall Street’s support for Aave’s framework help the token regain lost value?

Citi’s Thesis Points Straight at Aave’s Horizon Market

Citi’s analysis focuses on a service Aave has already built. On August 26, 2025, Aave Labs, the protocol’s primary developer, launched Aave Horizon. This lending market operates on Ethereum (CRYPTO: ETH) and allows institutions and qualified users to borrow stablecoins—tokens tied to the U.S. dollar—against real-world assets.

In Horizon, real-world assets refer to tokenized funds containing U.S. Treasury bills and AAA-rated collateralized loan obligations—bundles of corporate loans categorized by risk. Initial collateral options were provided by Superstate and Centrifuge, with Horizon collaborating with Ripple and VanEck.

Qualified investors can deposit a tokenized fund and borrow stablecoins up to a predetermined loan-to-value ratio, which limits the loan amount based on the collateral’s value. Anyone can lend stablecoins in this market and earn interest from institutional borrowers. Additionally, each asset issuer manages investor requirements and performs know-your-customer checks, keeping compliance with fund managers rather than Aave Labs.

Aave generates revenue by taking a portion of the interest borrowers pay. Thus, introducing new collateral types could attract more loans and, subsequently, more fees. This logic has led to proposals like Babylon’s, which seeks to allow native Bitcoin (CRYPTO: BTC) to back loans on Aave.

Banks Are Building Rival Collateral Networks Without the AAVE Token

Citi also operates its own tokenization business. Citi Token Services provides round-the-clock tokenized bank payment services for institutions, and Citi launched tokenized depositary receipts in 2026. If tokenized collateral gains traction, Citi’s infrastructure could compete with Aave for the same institutional funds.

Other major banks are developing similar systems. JPMorgan Chase (NYSE: JPM) promotes a Tokenized Collateral Network on its Kinexys platform, promising near real-time collateral transfers. Additionally, the Canton Network has piloted collateral mobility, while the DTCC, a key U.S. securities settlement organization, stated in 2026 that real-time collateral mobility can reduce capital and liquidity requirements. These systems are permissioned, meaning they operate within closed networks where banks control access.

Furthermore, Aave Horizon facilitates loans in dollar-based stablecoins, and the collateral consists of tokenized funds. Interestingly, the AAVE token is not used as either the settlement asset or the collateral, and Citi’s summaries do not mention it. Thus, while institutions may be enthusiastic about Aave’s software, they could use the lending engine for years without buying the AAVE token.

AAVE Holders Benefit Only Through Buybacks

AAVE functions as a governance token, allowing holders to participate in decisions about protocol changes, including new collateral types and risk limits. However, AAVE holders do not automatically receive revenue from Horizon usage.

AAVE holders receive value through the decentralized autonomous organization (DAO)—the governing body that oversees the protocol. The buyback program uses protocol revenue to buy AAVE tokens on the open market and store them in a treasury reserve. This reserve funds staking rewards, grants, and service providers rather than reducing the total supply.

In June 2026, Aave founder Stani Kulechov introduced Aavenomics 3.0, aiming for an automatic buyback system that would allocate all protocol and stablecoin revenue to AAVE holders by default. This plan links Citi’s analysis to the AAVE token, but it depends on governance votes and consistent borrowing.

Traders remain cautious. AAVE has risen 52.6% over the last 90 days, suggesting some optimism about Aave’s institutional prospects is already priced in. Nevertheless, the token is still down 35.1% over the past year, having reached $188 on October 6 before continuing its decline.

Can AAVE Recover From Its 77% Drop After the Citi Aave Note?

Citi’s note makes Aave a more credible institutional platform, but on its own it gives the AAVE token little reason to recover. An institution must deposit tokenized collateral on Horizon, borrowers must pay steady interest, and AAVE holders must keep that revenue flowing into buybacks.

The clearest signal for holders is a named bank or asset manager committing tokenized collateral to Horizon, ideally a Citi client. If that happens and AAVE climbs above its October 6 high of $188, the market would be treating Citi’s thesis as a token catalyst. If no new institution signs on by December and AAVE stays below $148, the note likely remains good news for Aave the business but little more for the coin.

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